EIA: Electricity Prices to Increase 18% by 2040

by | Apr 22, 2015

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The DOE’s Energy Information Administration (EIA) released its comprehensive Annual Energy Outlook 2015 on April 14. EIA forecasts an 18 percent increase in retail electricity prices between 2013 and 2040 due to moderate increases in power generation, transmission, and distribution costs. The report predicts that natural gas prices will eventually rise, new coal and nuclear facilities will generally be too expensive to build, and demand for electricity will grow slowly. Combined with state-level policies, these factors will spur increased use of renewables.

Although the report is widely known as one of the most comprehensive sources for information on the future of the energy industry, its assumptions are based on current regulations, not future regulations that are likely to be enforced. Most notably, EIA explicitly states that it does not take into account the EPA Clean Power Plan that should be finalized this summer and is expected to continue to shift the country from a reliance on coal toward natural gas. Thus EIA predicts just a modest decrease in coal generation, from 39 percent of the electricity mix today to 34 percent in 2040.

Midwest Energy News noted last week that most states are meeting to explore strategies for complying with the Clean Power Plan, and 41 of 50 states are exploring multi-state approaches. Navigant Research predicts that an additional 45 GW of coal-fired generation will be retired over the next decade. Utility Dive also notes that past EIA reports have underestimated the pace of change, particularly in renewable energy development. Assuming the Clean Power Plan takes effect as scheduled, and the Mercury and Air Toxics Rule (which is already factored into the EIA forecast) stay in place, next year’s forecast could look very different.

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